The arrangement, which replaces Sprint's original deal, gives Clearwire up to $1.6 billion over the next four years for WiMax services and $350 million in advance for Long Term Evolution (LTE) network capacity. In addition, Clearwire said it has made interest payments totaling $237 million, meaning it's no longer in danger of defaulting on its debt, as it was threatening to do. (See Clearwire: Playing Chicken?, Clearwire Still Looks to Sprint for Funding and Sprint's $13.5B Jump to LTE With LightSquared.)
The financial terms of the deal are threefold:
- Sprint pays Clearwire $926 million for WiMax services in 2012 and 2013, with the first $600 million coming in 2012
- Sprint will give Clearwire up to $350 million in prepayments over two years for LTE capacity provided Clearwire meets certain buildout targets by June 2013
- If Clearwire raises additional equity funding between $400 and $700 million, Sprint will provide up to $347 million more
From a network perspective, the deal ensures Sprint, as part of its Network Vision strategy, will continue to operate Clearwire's WiMax network through at least 2015. The carrier also gains access to Clearwire's planned LTE-Advanced-ready overlay network and additional LTE capacity.
Speaking at a Merrill Lynch & Co. Inc. investors' conference Thursday, Sprint CFO Joe Euteneuer said that since the "marvelous deal" gives Sprint unlimited access to Clearwire's WiMax network, it will allow Sprint to meet growing data demands while maintaining an unlimited pricing structure.
"We'll be one of the only people with a coordinated [FD-LTE and TDD LTE] chipset going into handsets, and our spectrum allows us to keep our one differentiation of unlimited and allows us to deal with our capacity to continue it," Euteneuer told analysts.
The two companies are also collaborating on where they will build LTE macro-cell sites to cover Sprint's high-usage areas to keep the capacity gains going. Even though Clearwire has plenty of spectrum, Euteneuer said Sprint is open to looking to other partners -- including cable companies and LightSquared , if it clears up its GPS issues -- for additional spectrum in the future.
Sprint's Network Vision prospects
Euteneuer said he's confident Sprint will be able to execute its Network Vision strategy and is using this deal to encourage Clearwire to accelerate its LTE deployment. The carrier will continue to sell and support WiMax phones with two-year contracts through at least 2012, but Euteneuer said he knows Sprint needs to be prepared with LTE TDD handsets as well, given this goal. (See Sprint Accelerates Network Vision.)
Mizuho Securities USA Inc. analyst Michael Nelson is slightly less positive on the deal, at least from a financial sense. He believes it reduces risks for Clearwire and makes it more likely the company can secure additional funding. But it's less certain how it will affect Sprint financially.
"Sprint already faces significant expenses associated with Network Vision and iPhone subsidies and we believe today's agreement places additional pressure on the company's balance sheet," Nelson wrote in a research note.
— Sarah Reedy, Senior Reporter, Light Reading Mobile